The European Banking Authority has launched a public consultation on draft regulatory technical standards for valuing derivatives liabilities that are set to be included in new bail-in rules under the Bank Recovery and Resolution Directive. With its latest proposals, the EBA aims to provide EU resolution authorities with tools to carry out objective valuations based on costs and gains that would be incurred when a counterparty enters into a replacement derivatives trade following the liquidation or restructuring of its financial counterparty. Swaps participants argued that additional layers of complexity involved in valuing contracts for the purposes of haircutting could result in legal and consultancy costs exceeding any value that could be extracted from bailing in the contracts.
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